All this raises the question of how the Chinese government would respond if a private security provider from China has a “Fallujah moment” and a large number of personnel are killed in a conflict zone, as happened to Blackwater in Iraq in 2004. In a hostile area far from home, many things can go wrong, even when a force is competent and well-prepared. Would Beijing be prepared to take punitive measures if insurgents in Sudan, Iraq, or Afghanistan managed to ambush Chinese private security guards? Would Beijing be willing to seek the help of the U.S. military for a rescue operation if Chinese contractors were under fire in an area of Iraq or Afghanistan where U.S. special forces units were in theater?

Firms who hire private security providers from China will have to find ways to manage friction with the local military and other security forces that previously protected Chinese workers and assets. Companies could end up paying twice for security – once to pay off disgruntled local commanders and then again for the actual security service from the Chinese private security provider. This could be exacerbated by the fact that the Chinese government, like Chinese companies, is perceived to be increasingly affluent. Beijing has consistently relied on paying ransoms to free hostages, while the latter, unfettered by a Foreign Corrupt Practices Act, for example, are widely perceived to engage in bribery, which is the coin of the realm in many unstable areas.

In addition, lines could be blurred if the PLA is involved in an evacuation of Chinese citizens from an active conflict zone as it did in the spring of 2011, and private armed Chinese contractors are called in to assist by private Chinese parties with urgent security needs that Beijing might not be willing to handle.

Another issue is that of the legal code of conduct that would govern the operations of private Chinese security personnel working abroad. China is a signatory to the Montreux Document, which lays out a suggested code of conduct and best practices for private military and security firms. However, the document isn’t legally binding. One possible solution to this would be for the Chinese People’s Congress to build upon the law it passed in 2011 to curtail bribery by Chinese companies working overseas and formulate a binding set of regulations for private security providers working outside Chinese borders.

More broadly, incidents involving private security contractors working outside China would also pose substantial legal and diplomatic challenges, even if the Chinese government creates laws governing the firms’ activities. For instance, we strongly suspect the Chinese response to a contractor who committed a crime in Sudan or Iraq would be to quietly whisk him back to China for legal proceedings, as opposed to risk the injustices the local judicial system might wreak upon a foreign national. This in turn would almost certainly reinforce the view that host state governments are weak and permit Chinese to enjoy extraterritoriality at the expense of locals’ desire for justice.

Finally, private security services are likely still unaffordable to the small businessmen and entrepreneurs who may venture into risky areas. As such, local groups with an ax to grind against China or who seek to put their government in a tough position could turn to targeting the private Chinese businesspeople who live outside of corporate compounds guarded by the skilled former PAP members. Under such a scenario, Beijing would have to grapple both with the diplomatic problems outlined that could result from Chinese private security firms operating in a region, as well as the pre-existing problem of private businessmen who are too small to track and effectively protect, but whose fate will nonetheless spark nationalistic reactions in China to which the government may have to respond.

Andrew Erickson is an associate professor in the Strategic Research Department at the U.S. Naval War College. Gabe Collins is the co-founder of China SignPost and a former commodity investment analyst and research fellow in the US Naval War College's China Maritime Studies Institute.